During the past 15 years South Dakota has refunded nearly $69 million of the contractors excise taxes to 38 construction projects1. That is $69 million in state tax revenues that have not been available for other South Dakota expenditures or economic development projects. The large project refund program, under which the refunds were authorized, is scheduled to sunset January 1, 20132.

House Bill 1230 proposes to replace this economic development statute with a Large Project Development Fund. Beginning 1-1-13, the large project development fund would be funded as the continuous appropriation with 22% of state contractors excise taxes. A continuous appropriationis not subject to annual review and approval, as are other state appropriations. This means that in years when contractors excise taxes spike, such as they would if the Hyperion project is built, the amount of tax dollars captured for the large projects development fund would spike as well.

Criteria for distributions from the Large Project Development Fund are not specified in detail in the legislative proposal – leaving discretion for administration of the fund to the Economic Development Board.

The proposed 22% continuous appropriation represents a 275% increase over the average 8% of contractors excise taxes that were refunded over the past 15 years of the program. Had the proposed legislation been in place for the past 15 years, the amount of taxes diverted from general funds for economic development incentives would have been $120 million higher – $189 million rather than $69 million.